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[16:00:00]

JOHN BERMAN, CNN ANCHOR: We're hearing them get to it right now. There it is.

The markets have closed on this day that was bad, on this week that was bad. It will take some time for it to adjust. But, right now, it looks as if the Dow lost more than 500 points in one day, which is what -- it's been several days since the market has lost this much this quickly, Christina.

CRISTINA ALESCI, CNN CORRESPONDENT: Since 2011, actually.

Analysts and strategists have called this the most unloved bull market. We have had a bull market since 2009. We haven't had a correction since 2011. So there are these forces that you guys were just talking about, which is emerging market meltdown, oil prices going lower, worries about the Fed, all of that playing into it, plus against the backdrop that there are investors out there that say, hey, the market has been disconnected from the fundamentals for a while here.

And this is an overdue correction here. Now, just to make the distinction between a short-term move and a longer-term move, this is a correction. This is a 10 percent drop from the peak. That doesn't mean necessarily that we're technically in a bear market. We are going to have to see the market drop even further in order to really put a stop to the bull market.

But at least this is starting to spark discussions about that, and a lot of nervousness, because the Fed, remember, was supposed to raise rates in the fall, potentially in the winter. And now investors are kind of scratching their heads, saying, hey, is that plan still in place, given what's happening in the markets, and not just in the U.S., but globally?

The U.S. was really a stalwart for a long time. We have already seen the markets melt down in Asia. The U.K. is officially in correction territory. So this has been happening elsewhere. It's now coming to the U.S. So even though the Fed officials today were saying, hey, we don't pay attention to day-to-day moves in the market, you have to imagine they can't ignore this kind of activity.

And, yes, we know on the outskirts of all this is the idea that this is a summer Friday. The trading is quite light. That sometimes means that you have an increase in volatility, because there aren't enough people on either sides of a trade to make things go as smoothly as normal. But still this is a huge move and this is a significant marker.

BERMAN: And, Cristina, it's not some act of randomness today. It comes at the end of a very tough week on Wall Street. It comes after weeks and weeks of news after China, which their markets has just shed numbers that, in the United States, we simply couldn't believe.

And it comes after all these concerns that have been coming in that perhaps their economy isn't growing as amazingly as it has been in the past, Cristina.

ALESCI: Yes, and don't forget that China made a move to devalue its currency. That has ripple effects, right? That makes the U.S. dollar stronger. What does that mean? That means that companies find it harder, U.S. companies find it harder to sell their goods overseas, because that means the U.S. goods are more expensive. Right?

That has investors taking a hard look at the profits of all of the companies in these major indices, including the Dow, including the S&P. And by the way, John, we have to keep in mind that although we have a direction in the Dow, that doesn't -- it hasn't really spread to the broader market net, because the S&P isn't hitting that level just yet.

The Nasdaq, which is more tech-focused, is a bit closer. So we will have to see those other indices really play this trend out as well.

BERMAN: I want to bring in Gillian Tett, the U.S. managing editor Of "The Financial Times," to talk about this. She is down at the stock exchange as well.

Gillian, we're talking about investors, these big-time investors. What about the little guy, what about all of us who are looking at our 401(k)s today, thinking, gosh, there's not as much in it today as there was two days ago? What do you do? I suspect the answer is don't do anything today.

(CROSSTALK)

GILLIAN TETT, "THE FINANCIAL TIMES": Well, absolutely.

I think the market right now is suffering from what I like to call as something nasty in the woodshed syndrome, because if you think back to the financial crisis, and when that started -- of course, that started also in the summer vacation period -- you had a lot of people who woke up one day and realized that the financial market was very dependent on subprime mortgages and housing, but they didn't understand how that housing risk had been packaged and sliced and diced and scattered across the system.

The issue today isn't housing. It's China, because right across the world, people are waking up and realizing that so much of our global growth, so much of our optimism has been resting on China and the China miracle story, that they have become almost complacent about the risk, and the fact that no one really understands quite what's happening inside the Chinese economy.

What's going on is really a nasty wakeup call, not so much about what we know, but about what we don't know.

BERMAN: And, Andy, you know, some of what we do know isn't so bad. The United States economy continues to create jobs. Corporations in general, except for energy companies, oil companies, have been doing fairly well this summer.

ANDY SERWER, YAHOO FINANCE: Right.

I mean, stocks were priced very high.

So that is not connected to the earnings, because the earnings have started to slow, but, generally, you're right. The economy, John, the United States is still improving. The economy in China is improving, but improving less slowly.

[16:05:13]

And one thing I want to touch on that I think is very important is we're relying on leaders, financial leaders to set things right. In China, the government there tried to bolster the stock market. It was ineffective. Here in the United States, we look for the Federal Reserve to try to help us out.

The Federal Reserve can't cut interest rates again. There's nowhere to go. So I think that's also scaring Wall Street traders right now, that, you know, well, gee, it's not really the case that the Chinese government is in control or the United States government can bail us out at this particular point in time.

BERMAN: Well, just to bring people up to speed -- speed is a bad word today -- bring people up to the lows we're looking at right now -- the stock market dropped 530 points today, the Dow down 530 points.

We're five minutes after the closing bell, we're some 10 minutes -- sorry -- 10 percent off market highs. So this is now officially, Cristina Alesci, a correction. And now we're looking at not just today, which is bad, but we're looking at September. I think a lot of people are wondering right now, what is the Fed going to do? Because things had been looking so rosy that the Fed had been suggesting, hinting, more than hinting that it was about to raise interest rates.

But now today, maybe it's going to be different.

ALESCI: Yes, that's right, John.

The Fed has a tough decision to make now, because even though the Fed would say and the Fed officials would say they're not paying attention to these daily market moves, clearly, they have to consider some of this nervousness that's out there. And like I said, the U.S. had been sort of the stalwart in all of this.

So for the Fed to say, you know, we're completely blind to these market moves, it's kind of difficult. And then -- to believe -- and then plus investors don't know what to make of it, right? Because if they do raise rates in this environment, that's going to create more panic. That's going to constrict potentially credit and that's going to create more potentially panic.

Again, I want to just caution everyone that this is a move, this is a short-term move. We're going to have to see how it plays out over the next couple of weeks and months really to call this a bear market or get concerned about longer-term trends.

BERMAN: But I think, Cristina, you agree and Andy agrees and Gillian agrees it's bad, but we don't see panic yet.

Gillian, my friend Christine Romans equated to the United States market right now being sort of like the dirtiest shirt in the pile of dirty laundry. It's bad, but it could be much, much worse.

It's Friday now. What happens Monday? Is this one of those things where, Monday, the market is going to bounce back 480 points and we will forget this ever happened? Because I'm also starting to sense people saying, you know what? Maybe the market is off its highs for a while now.

TETT: Yes.

Well, listen, the key thing to remember right now is that August is a terrible time for any traders to go away on vacation, because whenever you have an August, and the markets are not amused, you tend to have a lot of gyrations, often quite dramatically, because there's pretty thin trading going on, although there was a lot of selling today.

But perhaps a key issue now is really what happens next in China. If we see the Chinese authorities coming out with some kind of credible plan, some indication that they're actually in control of their economy and they really want to try to bolster growth, that will help to reassure nerves.

If we see, say, Europe or the Greek situation improve a bit, although we have had some bad news there as well today, then that might also try and reassure people. But right now, it's a sense of fragility and nervousness that's really taking over many investors. And it's hard to see what's going to break that in these thin markets.

BERMAN: Yes, so things may not pick up like they often do next week.

Andy, I want to focus on what was the last item on that graphic we just saw, the plunging oil prices, because oil prices are down. They are way down. They're down below $40 a barrel. You're looking at the prices at the pump. A year ago, you could get a gallon of gas for $3.44. Today, it's $2.63.

I just got back from a driving vacation. Man, I loved it. Gas prices were great, they were great for consumers. But they're starting to get to a level where it's having repercussions on energy countries, on energy-producing states and maybe to some extent the market and the economy as a whole.

(CROSSTALK)

SERWER: You do need a balance there, John.

And you're right. Gas prices are great for consumers. Auto sales, it's great for auto sales as well. But when you talk about employment in states like Texas, Oklahoma, the Dakotas, California, there are a lot of people working in the oil and gas business in those states.

And you start to see people lose jobs, particularly in the exploration areas, where people get hired on a sort of temporary, cyclical kind of basis. And that could really start to hurt the economy in those states and of course hurt the employment and economic picture in the United States overall.

BERMAN: Gillian, just last word as we look at this number again on the television, down 530 points in a day, that's a big number. So, as you head into the weekend, looking at that big, bad number on the screen, what should you be thinking?

[16:10:14]

TETT: Well, it certainly is a big, bad number.

And I guess the key question is, what is this going to do to consumer confidence, to investor confidence, and also what is it going to do to the Fed? Because I have spoken to a number of Fed officials in the last few weeks and they are very keen, most of them, to get on with the process of what they would call normalizing rates.

Even if they only raise rates by a tiny bit, and don't do anything for a while, they're very keen to cross over that Rubicon and actually start the rate-hiking process. The question now, though, is, if they have to delay once again, how is that going to sit inside the Fed and what is that going to do to the markets?

BERMAN: Our politics lead, Donald Trump getting ready to speak to the same size crowd that rock stars usually get. More than 40,000 people have requested tickets. And if his Twitter rants today are any indication, his main target tonight will be Jeb Bush. What is he going to say? Stay with us.

(COMMERCIAL BREAK)

[16:15:21] ANNOUNCER: This is CNN breaking news.

BERMAN: Welcome back to THE LEAD. I'm John Berman, in for Jake Tapper.

Still more breaking news in our world lead, and what could be a critical blow in the U.S. campaign against ISIS. A key terrorist commander killed in a drone strike. U.S. officials tell CNN that Haji Mutazz met his maker at the end of a hell fire missile just days ago in Iraq. Mutazz is the top deputy of the so-called ISIS caliph Abu Bakr al-Baghdadi.

I want to get straight to CNN's Pentagon correspondent Barbara Starr.

Barbara, the White House confirmed this past hour they believe he was killed.

What more can you tell us about this strike and the role that Mutazz played in ISIS?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Haji Mutazz was number two to Abu Bakr al-Baghdadi, the leader of ISIS, someone the U.S. wanted to get very badly.

A key aide to Baghdadi, financier, in charge of operations in Iraq, they believe Haji Mutazz coordinated the takeover of Mosul, Iraq, in June of 2014, Iraq's second largest city, responsible for operations in Iraq, a long time ISIS operative.

Very interesting how they got him. Officials say they had actionable intelligence, their words. That means they knew he was traveling in a vehicle on a road near Mosul, Iraq, which is an ISIS stronghold. They were able to send up an aircraft, launch a missile and get him.

This is raising some really interesting questions, John, about the level of U.S. intelligence, about some of these high-value targets, how did they know where he was? And that he would be on that road at that time? It suggests a level of intelligence that may be improving, John.

BERMAN: Maybe they are creeping inside this operation now.

Barbara, we should say there were reports that Mutazz was killed in December and we do hear from time to time that these guys get killed and then un-killed somehow very quickly.

Why are the sources right now so sure that this time he really is dead?

STARR: You're absolutely right. Back in November, December, the Pentagon announced that three top ISIS officials had been killed. And some officials have said that on background, as we often say in Washington, not attaching their name to it, that Mutazz was one of those at the time.

We are now told that there are other people with the same name, there was an identity mix-up, and they really weren't all that sure back when they said it. This time, they say they are absolutely certain it was him. But, you know, John, you're absolutely right. Some of these top

operatives that they kill by drones get un-dead. They show up on videos afterwards because the U.S. has simply made a mistake. They think they've got them, but it doesn't prove to be the case.

This time today, officials are saying they absolutely did kill him -- John.

BERMAN: This time they're certain. ISIS number two taken out in Iraq.

Barbara Starr, just one aspect of the breaking news today. Thank you so much.

More breaking news: the stock market down 530 points, worst day in four years.

And then there's this -- Donald Trump speaking to a football-stadium size crowd in just a few hours. It's Friday. A strange one, too.

Stay with us.

(COMMERCIAL BREAK)

[16:23:05] BERMAN: Welcome back to THE LEAD.

Turning now to politics, we're going to need a bigger venue. That's what the Trump campaign said to themselves when RSVPs for his rally tonight in Alabama started flooding in.

So, just how big is big? Try football stadium big. You're looking at live pictures of the stadium where it's going to happen. For the campaign's latest count, 42,000 people intend to show up in support of Donald Trump tonight.

But while Trump plays to a fired up fan base, it is the loaded controversial term by him and Jeb Bush that is raising concerns among Latino voters.

I want to get straight to CNN senior Washington correspondent Jeff Zeleny.

Jeff, you are in Des Moines and, Jeff, we heard both Donald Trump and even Jeb Bush use the phrase anchor babies this past peek when talking about immigration.

JEFF ZELENY, CNN SENIOR WASHINGTON CORRESPONDENT: You're right, John. I mean, the back and forth between Trump and Bush is quite extraordinary and we get a sense it's only just beginning. Think what's coming up tonight.

But not all Republicans are ready to jump in to what's becoming the Trump primary. We caught up with Ted Cruz who is eager to be on the sidelines smiling.

(BEGIN VIDEOTAPE) ZELENY (voice-over): For Republicans, another immigration firestorm. This time over a single phrase, from a single candidate. Guess who?

ZELENY: Trump was quick to seize on what he called a Bush flip-flop, tweeting, "Jeb Bush signed a memo saying not to use the term anchor babies, offensive. Now he wants to use it because I use it. Stay true to yourself."

But that tweet, not exactly true. This is the memo. It does say to not use the phrase anchor baby, but it's not signed by Bush, simply issued by a group he was co-chair of.

So Bush fired back with his own swipe at Trump. "His massive inconsistencies aside, Donald Trump's immigration plan is not conservative and does not reflect our values."

As the GOP nervously watches, Trump is taking his road show south. His rally tonight in Mobile, Alabama, was moved to a high school football stadium. His aides expecting 42,000 people, which would be the biggest crowd yet of the campaign.

(END VIDEOTAPE)

ZELENY: Now, here in Des Moines, Ted Cruz is planning a rally of his own. Only 3,000 people, not exactly Trump size.

But John, I can tell you, a far, far bigger than most campaign events this time of the year. Usually they're held in the living room in the heat of the summer. But Donald Trump has changed all of that -- John.

BERMAN: Sure has. Jeff Zeleny for us in Des Moines.

Let's talk about this. Joining us right now, former battleground state director for President Obama's 2012 campaign, also work in the campaign again in 2008, Mitch Stewart, former deputy campaign manager for Mitt Romney's 2012 Oval Office run, Katie Packer.

Mitch, let's talk about this 42,000-seat arena that Donald Trump is headed to in Alabama tonight. I know that political experts like yourself say crowd size doesn't matter. But Donald Trump is pulling these crowds. Bernie Sanders is pulling these crowds. I don't think Hillary Clinton, Jeb Bush or even President Obama could fill a 42,000- seat arena right now.

So, it does say something, doesn't it, Mitch?

MITCH STEWART, FORMER ADVISER, OBAMA 2012 CAMPAIGN: Well, the importance of filling a 42,000 person stadium in Alabama is much different than filling a 42,000 stadium in Iowa or New Hampshire or even South Carolina. Jeff mentioned that, the fact that Ted has 3,000 people in Des Moines tonight is probably more relevant and more impactful than having 40,000 people in Alabama.

BERMAN: You're saying the exchange rate from Alabama and Iowa. Iowa is at least four times, my math is bad, 12 times that of Alabama -- interesting.

Katie, let me ask you, though. I mean, Donald Trump is generating enthusiasm. I bet you Jeb Bush would like a size crowd of 42,000. He'd do it anywhere, he'd do in Hawaii or Alaska if he could.

KATIE PACKER, FORMER DEPUTY CAMPAIGN MANGER, ROMNEY 2012: Well, I mean, I sure he can fill that stadium. That's all I can say, because that's going to be a big stadium if it's half empty.

But, you know, everybody shows up when the carnival comes to town and that's what Donald Trump is. He's a bit of a carnival barkers and he shows up and he's a celebrity. He had a massively popular television program. So, I think there's a lot of people that are going to come out because of the curiosity factor sort of weighs in here.

But it doesn't necessarily mean they want him to be president of the United States. At the end of the day, I don't think all the candidates are competing, you know, to fill a football stadium. They're competing to put forth ideas and hopefully become the leader of the free world.

And I don't think that's something we're seeing in Donald Trump.

BERMAN: But, Katie, isn't it more than just a curiosity? It's become part of the conversation in this Republican primary. You have Jeb Bush now using the term anchor baby, then explaining why in the context with which he used it.

You have many of the candidates now being asked questions, not just about that term, but also about birthright citizenship, the idea if you're born in the United States, even if your parents were here -- are here illegally, you should be a citizen.

Listen to what Scott Walker said when he was being interviewed by CNBC.

(BEGIN VIDEO CLIP)

CNBC: So did people misunderstand, you're actually not for ending birthright citizenship?

GOV. SCOTT WALKER (R-WI), PRESIDENTIAL CANDIDATE: I'm not taking a position one way or the other.

(END VIDEO CLIP)

BERMAN: That's a short version of the clip right there. He refused to say whether he's for birthright citizenship. I think he's sort of said he was for it before in the past. But the fact of the matter is, what Donald Trump is now saying, what he's campaigning is being put to every other candidate, Katie.

PACKER: Yes, and I think that's the dangerous part of the Donald Trump effect, is everything he says is incredibly inflammatory. It's inconsistent with previous positions he's taken. It's not backed up by fact, and all the candidates have to respond.

And the unfortunate thing is what we're not talking about is Hillary Clinton using an unsecure server for classified documents.